Earlier this week, the Massachusetts House of Representatives unanimously passed a bill that would dramatically alter the noncompete landscape in the Commonwealth and require employers to review almost all existing noncompete agreements for compliance. The bill was viewed by many as a compromise between the business community and trade associations opposing noncompetes, the latter of which claims they stifle innovation and employee mobility.
The most significant portion of the legislation would limit noncompete agreements to one year from the final day of employment, unless the employee unlawfully takes property belonging to the employer (physical or electronic property), or breaches a fiduciary duty to the employer. In cases involving property theft or fiduciary duty breach, the noncompetition period can only be extended to two years. In addition, to be enforceable for any period of time, the noncompete must be “no broader than necessary” to protect legitimate business interests and must be “reasonable in geographic reach,” which is defined as a geographic scope limited to areas where the employee provided services or had a “material presence” within the last two years.
Another portion of the bill—known as the “garden leave” provision—requires employers to pay departing employees half their salary during the post-employment noncompete period, or some other agreed-upon amount of money (likely set out in the noncompete). Failure to make these post-employment payments would render the agreement unenforceable.
Here are some other relevant provisions of the bill:
- For agreements entered into at the outset of employment, employers must state that the prospective employee has a right to consult with counsel prior to signing, and employers must provide the agreement to the prospective employee on the date a formal employment offer is made or 10 days before the employee’s first day, whichever is earlier.
- For agreements entered into after the start of employment, the right to consult with counsel and 10 days’ notice must be provided, and the employer must provide “fair and reasonable” consideration (i.e., compensation or benefits) above and beyond continued employment.
- Noncompetes cannot be enforced against nonexempt employees, student interns, and minors. This exception for nonexempt employees could be significant with the salary threshold for exempt-employee status more than doubling on December 1.
- Noncompetes similarly cannot be enforced against employees terminated without cause or laid off.
- Choice of law provisions—which provide that the law of a state other than Massachusetts applies to the noncompete—will not be enforced if the employee resides or works in Massachusetts at the time of termination.
- The law applies to agreements executed on or after October 1, 2016.
Notably, the legislation expressly protects anti-solicitation, anti-recruitment and nondisclosure agreements. This means that even if the law passes, employers can still restrict a terminated employee’s ability to poach clients, recruit coworkers, or disclose confidential information.
The legislation will now move to the Massachusetts Senate, which can approve as is, pass with changes, or reject. Major changes would need to be worked out before sending the legislation to Governor Baker for his signature. Governor Baker has yet to take a position on noncompete agreements.